This cause came
on for hearing before the Colorado Oil and Gas Conservation Commission
(“COGCC”) on August 16 and 17, 2004 at 10:00 a.m. and 7:30 a.m. in the Birch
Room at the Ramada Inn, 124 W. 6th Street, Glenwood Springs,
Colorado, after giving Notice of Hearing as required by law, as to why the
COGCC should find EnCana Oil & Gas (USA) Inc. in violation of certain of
the COGCC’s rules and regulations (2 CCR-404-1, “Rules”) and why it should impose
penalties for those violations pursuant to § 34-60-121, C.R.S., as
amended.

2.COGCC’s “Notice to All Operators Drilling
Williams Fork Formation Wells in Garfield County - Surface Casing Depth and Modification
of Leakoff Test Requirements” dated May 3, 2001 (“2001 Notice”) which amended a
notice to operators dated September 22, 1998, specified drilling permit
conditions applicable to all wells drilled in Garfield County to the Williams
Fork Formation. The 2001 Notice was not
attached to or referenced by EnCana’s copy of the APD for the Schwartz 2-15B
Well, although it was on the COGCC’s copy.Among the permit conditions in the 2001 Notice was the requirement to
report to the COGCC Northwest Colorado Area Engineer as soon as feasible within
twenty-four (24) hours, all lost circulation zones and gas kicks, together with
depths, mud volumes lost, mud weights before and after kicks, and procedures
used to control kicks.

3.While drilling
the well on January 20, 2004
EnCana lost circulation at the depth of 1543'. EnCana continued drilling without circulation
to a depth of 1589', and the well began to flow requiring the well to be shut-in
for one (1) hour to control the kick.The
lost circulation and kick were not reported to COGCC staff. It is uncommon to encounter kicks this shallow
in the Wasatch Formation.

4.While drilling the well on January 27, 2004 EnCana
lost circulation at a depth of 4328'. The
well began to kick shortly thereafter and was shut-in for eight (8) hours to
control the kick and reestablish circulation with kill mud.The lost circulation and kick were not
reported to COGCC staff.

5.On February 6, 2004, the Schwartz 2-15B Well had been drilled
to total depth and was logged.EnCana
had difficulty breaking circulation after logging. EnCana also lost circulation while running
casing and had to shut down for seven (7) hours to build pit volume and
re-establish circulation.

6.Casing was run to total depth and the well
was cemented on February 9,
2004.Cement was circulated
to surface with twenty-five (25) barrels excess and was witnessed by EnCana
supervisors and by Schlumberger personnel.

7.On February 16, 2004 EnCana ran a cement bond log (“CBL”) on
the Schwartz 2-15B Well which showed the apparent top of competent cement had
fallen to approximately 4050’, far below the level required on the permit
conditions and far below what was observed at the end of the cementing
job.At the time, EnCana engineers interpreted the CBL as
showing the top of cement at approximately 3500’; EnCana acknowledges that the
CBL can be interpreted to show incomplete cement coverage above 4050’.

8.On February 16, 2004 EnCana ran a temperature survey in
conjunction with the CBL.The temperature
survey showed cooling beginning at the approximate depth of 4328' and upward.The survey demonstrated upward gas migration
was occurring under shut-in conditions. The flow originated below the apparent
top of cement and suggested the cement was not competent above that depth.

9.On February 18, 2004 EnCana ran a series of Cased Hole
Dynamics Tests to measure formation pressures.The tests showed formation pressure gradients averaged 0.591 psi/ft
below a depth of 4711' and averaged 0.232 psi/ft above that depth.The tests suggest the formations below 4711'
are over pressured and that a geologic feature could exist that allowed the
intervals at and above 4711' to be extremely under pressured.

10.EnCana performed completion operations
between February 16, 2004
and April 1, 2004
that included cased hole logging, perforating, fracturing and flowing back four
(4) different intervals without notifying the COGCC staff that the cement top
had fallen to approximately 4050’ and without disclosing the well conditions.

12.Staff reviewed the Sundry Notice on March 30, 2004 and called
an EnCana engineer to inquire why the sundry proposed perforating at 3800' and
circulating cement to surface on the well since there had been no previous
discussion of a problem.COGCC staff
asked the EnCana engineer what the bradenhead pressure was, and he responded
that it was five hundred (500) pounds per square inch (psi).COGCC staff approved the Sundry Notice that
same day.

13.On April 1, 2004 COGCC staff received a complaint of the
recent appearance of gas bubbles in West Divide Creek where none had been observed
previously.COGCC staff inspected and
confirmed the existence of the gas bubbles in West Divide Creek, notified
EnCana of the complaint and its validity, and scheduled sampling to begin to
determine the cause.

14. On April 2,
2004, as part of the investigation to determine the cause of the seep, COGCC
staff obtained samples of the bradenhead gas from two (2) wells adjacent to the
West Divide Creek seep (Schwartz 2-15B Well and Brown 11-2C Well), one (1)sample of Williams Fork Formation produced
gas (Twin Creek 1-15B Well), and one (1) sample of gas seeping into West Divide
Creek. EnCana personnel and Cordilleran
Compliance Services (“Cordilleran”) were present during this investigation.

15.On April 2, 2004 the COGCC staff and Cordilleran took water
samples from West Divide Creek to determine whether benzene, toluene,
ethylbenzene, xylenes (“BTEX”), or inorganic compounds were discharging from
the seep.Cordilleran also sampled a
pond on Pepi Langegger’s (“Langegger”) property.

16.On April 7, 2004 COGCC staff and Cordilleran obtained a
sample of the bradenhead gas from one (1) additional well (Morgan 12-14B Well)
adjacent to the West Divide Creek seep.

17.On April 8, 2004 the COGCC
staff collected water and gas samples from two (2) stock ponds (Langegger upper
and lower ponds) located in the valley
of West Divide Creek.

18.Isotopic and compositional analysis indicated
the bradenhead gas from two (2) of the wells (Schwartz 2-15B Well and Brown
11-2C Well) and the produced gas (Twin Creek 1-15B Well) were very similar and
were from the Williams Fork Formation.The bradenhead gas from one (1) of the wells (Morgan 12-14B Well) was
not similar to the Williams Fork Formation.The isotopic values and composition of the gas seeping into West Divide
Creek and into the Langegger lower pond also were very similar to the produced
gas from the Twin Creek 1-15B Well and the bradenhead gas from the Schwartz
2-15B Well and the Brown 11-2C Well indicating that gas seeping into the West
Divide Creek and into the Langegger lower pond was Williams Fork Formation gas.

19.Analysis of a water sample taken from West
Divide Creek on April 2, 2004
showed impact to the surface waters of the state by the presence of benzene at
the concentration of 99.0 micrograms per liter (µg/l).The Water Quality Control Commission (WQCC)
has classified West Divide Creek as ”aquatic life cold water 1, recreation 1a,
water supply, agriculture” and has established 1.2 µg/l as the numeric standard
for benzene for surface waters so classified.From April 13, 2004
through April 19, 2004,
EnCana collected water samples from six (6) locations along West Divide Creek
on a daily basis for analysis of benzene, toluene, ethylbenzene, and xylenes
(BTEX).On April 19, 2004 benzene, at a concentration of
1.4 µg/l, was detected in only one (1) of the six (6) samples collected at
these locations.None of the BTEX
compounds were detected in any samples collected from EnCana’s six (6) surface
water monitoring locations inWest
Divide Creek after April 19,
2004.In addition, BTEX
compounds were never detected in any of the thirty-three (33) water wells, eleven
(11) ponds, or four (4) springs sampled by EnCana or the COGCC staff in the
vicinity of the West Divide Creek gas seep.

20.On May 19, 2004 the COGCC staff took a water sample from a
spring on the eastern cut bank approximately four (4) feet above the surface of
the water level of West Divide Creek in the gas seep area.Analysis of the May 19, 2004 spring sample showed impact to the
ground water by the presence of benzene at the concentration of 200 µg/l.The WQCC has established a ground water
standard for benzene of 5 µg/l.

21. At the direction of the COGCC staff, EnCana
initiated a ground water investigation.As
part of the investigation, EnCana installed nine (9) ground water monitoring
wells between June 28 and July 9, 2004, and began a program of sampling and
analysis of ground water from the wells.

22. On July 26, 2004, the COGCC
received the results from the first samples taken from the ground water
monitoring wells.Six (6) of the samples
contain benzene at concentrations ranging from 65 µg/l to 240 µg/l.These levels exceed the WQCC standard of 5
µg/l for benzene in ground water.The
extent of the ground water impact has not been defined.

23.After the gas from the seep in West Divide
Creek was identified as Williams Fork Formation gas, EnCana promptly responded
to the COGCC staff with a plan of action to address the environmental and
safety concerns of nearby residents and the community.Among other things, the plan called for
placing charcoal booms in West Divide Creek, implementing an air sparging
system to enhance natural volatilization of benzene in the creek water, and
supplying drinking water to nearby residents.In addition to implementing this plan, EnCana also voluntarily agreed to
cease drilling and completion operations within a two (2) mile radius of the
seep until new drilling and completion procedures can be developed to prevent
any similar occurrence in the future.

24. On April 5, 2004 the Schwartz
2-15B Well was remedially cemented.Within eight (8) days of the repair, the gas seep in West Divide Creek
had visibly decreased.Within twelve
(12) days the benzene concentration in West Divide Creek had decreased.

25.The decrease in gas seepage corresponding to
the remedial cementing of the Schwartz 2-15B Well indicates that the failure of
the primary cementing of the Schwartz 2-15B Well was the most likely reason
that seepage of Williams Fork Formation gas and the associated release of
benzene into West Divide Creek and into the ground water of the shallow
alluvium in the seep areaoccurred.

26.Impact to the surface and ground water by the
presence of benzene and methane indicate that Williams Fork Formation gas and
benzene are still present in the gas seep area and continue to be a threat to
the waters of the state; however, the amount of Williams Fork Formation gas and
the associated release of benzene appear to have decreased since April 5, 2004
when EnCana remedially cemented the Schwartz 2-15B Well.After April 19, 2004 benzene was not detected in surface waters
of West Divide Creek at EnCana’s six (6) surface water monitoring
locations.It is likelythat the remedial cementing
sealed the annulus of the Schwartz 2-15B Well and halted any further migration
of gas from the wellbore into fractures or surrounding rock.It is also likely that levels of Williams
Fork Formation gas and benzene in the ground water will continue to decrease as
a result of the elimination of the gas source.

27.The COGCC staff reviewed the completion
reports, bond logs and bradenhead pressures of all other wells within a two (2)
mile radius of the seep area. No other
well exhibited a top of cement low enough to allow pressure to build above the
strength of the formation below the surface casing shoe. No other well exhibited bradenhead pressure
high enough to exceed the strength of the formation below the surface casing
shoe. No other well had been completed
in a manner that would allow it to be the source of the seep.Neighboring operators’ wells were cemented
into the surface casing or to surface and exhibited low or no bradenhead
pressures.

28.EnCana is the owner and operator of all
Williams Fork Formation gas wells underneath and adjacent to the West Divide
Creek seep.As operator of the Schwartz
2-15B Well EnCana has accepted and continues to accept responsibility for
monitoring and addressing the environmental and public health and safety
effects of the release.The COGCC staff
has required and continues to require testing, analyses, delineation,
monitoring and reporting by EnCana to address the environmental and public
health and safety effects of the release.

29.The COGCC staff hand-delivered a Notice of
Alleged Violation (“NOAV”) to EnCana on April 23, 2004.The
NOAV had an abatement deadline of May 8, 2004.The
NOAV cited Rule 209., failure to prevent the contamination of fresh water by
gas, Rule 301., failure to notify the Director when public health or safety is
in jeopardy, Rule 317.i., failure to pump cement 200’ above the top of the
shallowest producing horizon, Rule 324A., impacts to water quality and Rule
906.b.(3), failure to report a release to the Director.

30.The NOAV required EnCana to submit a Site
Investigation and Remedial Workplan, Form 27 for COGCC staff approval,
outlining monitoring and mitigation measures to be taken to ensure protection
of public safety and to mitigate impacts to water resources, submit a letter
detailing how the Schwartz 2-15B Well was drilled and completed, along with an
explanation of what occurred that caused Williams Fork Formation gas, benzene,
and other hydrocarbon compounds to seep into West Divide Creek and Williams
Fork Formation gas to seep into a nearby pond on the Langegger property.

31.EnCana responded to the NOAV by letter dated May 7, 2004 with a Form 27
Workplan.The workplan was approved by
the COGCC staff on May 13,
2004.EnCana submitted an
amended response to the NOAV on May
18, 2004.

32. Rule 209.
states that “Special precautions shall be taken in drilling and abandoning
wells to guard against … the contamination of fresh water by objectionable
water, oil, or gas.Before any oil or
gas well is completed as a producer, all oil, gas and water strata above and
below the producing horizon shall be sealed or separated in order to prevent
the intermingling

of their contents.”EnCana’s failure to seal all
gas and water strata above the producing horizon resulted in impacts to West Divide
Creek and adjacent ground water by benzene.EnCana acknowledges that it should be found in
violation of Rule 209.

33.The
APD approved for the Schwartz 2-15B Well required the production casing to be
cemented to surface.During the
production casing cementing procedure on February 9, 2004, twenty-five (25) barrels of cement were
circulated to the surface.On February 16, 2004 EnCana
ran a CBL and temperature survey log prior to beginning completion operations
on the well.The CBL indicated that the
top of cement had fallen to approximately 4050’, well below the level observed
at the end of the cementing job and the level required by the permit
conditions.EnCana acknowledges that it
violated the permit conditions for failure to cement to surface.

34.Rule 317.i. states that “…cement shall be pumped behind the production
casing two hundred (200) feet above the top of the shallowest known producing
horizon.” EnCana indicated the top of
gas in the Schwartz 2-15B Well to be at approximately 4132’. EnCana’s completion report dated February 16,
2004 indicates that
an onsite EnCana employee or contractor read the CBL to show top of cement at
4050’, with which the COGCC staff concurs, and which is less than 200 feet
above the top of the shallowest known producing horizon.EnCana engineers interpreted the CBL to show
good cement coverage up to 3500’, but nonetheless, EnCana acknowledges that it
should be found in violation of Rule 317.i. for
failure to pump cement 200 feet above the top of the shallowest known producing
horizon.

35.On February 16, 2004
a temperature survey log was run on the Schwartz 2-15B Well in conjunction with
the CBL.The logs were run seven (7)
days after the well was cemented and were run under shut-in conditions.The temperature survey indicates gas entry
into the annular space between the production casing and the wellbore at
approximately 4300' and gas migration behind the pipe exiting into shallower
formations (i.e., crossflow).Rule 327.
states “The operator shall take all reasonable precautions, in addition to
fully complying with Rule 317., to prevent any oil, gas or water well from
blowing uncontrolled and shall take immediate steps and exercise due diligence
to bring under control any such well….”EnCana acknowledges that it
did not take all reasonable precautions to avoid an underground blowout, in
violation of Rule 327., and that as a result there was an unanticipated and
unintended release of gas from the well.EnCana acknowledges that it should be found in
violation of Rule 327.

36.The release of gas from the Schwartz 2-15B
Welloccurred from the date of the
attempted cementing of production casing (February 9, 2004) until the remedial
cementing operation (April 5,
2004), a period of fifty-five (55) days. This release of gas for fifty-five (55) days
resulted in waste of natural gas resources as defined by §34-60-103(11)
(“Waste” as applied to gas includes the escape, blowing or releasing, directly
or indirectly into the open air…) and §34-60-10313(a), C.R.S. (“Waste” in
addition…means [p]hysical waste, as that term is generally understood in the
oil and gas industry) and is prohibited under §34-60-107, C.R.S.EnCana acknowledges that it should be found
in violation of §34-60-107, C.R.S. because the release of natural gas for
fifty-five (55) days is a waste of resources, which is prohibited by statute.

37. Rule 301. states that “Immediate notice shall
be given to the Director when public health or safety is in jeopardy.Notice shall also be given to the Director of
any other significant downhole problem or mechanical failure within ten (10)
days.”EnCana ran a CBL and a
temperature survey on February
16, 2004 which indicated significant downhole problems. EnCana’s
notification on March 30,
2004 during the phone call with the COGCC staff was neither
immediate notification of the high bradenhead pressure nor within ten (10) days
of the downhole problem or mechanical failure as required by Rule 301.COGCC staff was notified on March 23, 2004 of the lack
of cement coverage and on March
30, 2004 of the bradenhead pressure.EnCana should be found in violation of Rule
301. for each omission (failure to report cement top falling 2/16/04-3/23/04, thirty-six
(36) days; failure to report bradenhead pressure 2/16/04-3/30/04, forty-three (43)
days).

38.Rule 324A. states that “The operator shall
take precautions to prevent significant adverse environmental impacts to air,
water, soil, or biological resources to the extent necessary to protect public
health, safety and welfare, by using cost-effective and technically feasible
measures to protect environmental quality and to prevent the unauthorized
discharge of oil, gas, E&P waste, chemical substances, trash, discarded
equipment or other oil field waste.”The
rule also states that “No operator, in the conduct of any oil or gas operation
shall perform any act or practice which shall constitute a violation of the
water quality standards or classifications established by the [WQCC]… for
waters of the state….”Based on the
benzene levels measured in West Divide Creek on April 2, 2004 which exceed the
WQCC surface water standards established for benzene, EnCana acknowledges that
it should be found in violation of Rule 324A.

39.Rule 910.a. and Table 910-1 specify the allowable
concentrations for soil and ground water based on standards and classifications
established by the WQCC.Based on the
benzene levels measured in six (6) of the nine (9) ground water monitoring
wells on July 9, 2004 which exceed the WQCC ground water standards established
for benzene, EnCana acknowledges that it should be found in violation of Rule
910.a.

40.On June 14, 2004,
COGCC staff requested the COGCC Director make an application to the Commission
for an OFV against EnCana.The matter
was docketed for the August
16-17, 2004 hearing.

41.On July 14, 2004, a Notice of Conflicts Counsel was filed
with the Commission which stated that Assistant Attorney General Carol J.
Harmon would be the legal advisor to the COGCC staff in the OFV matter, and
that Assistant Attorney General Tim Monahan would be the legal advisor for the
Commission.

42.On July 14, 2004, an Entry of Appearance was filed by Erika Z. Enger,
Attorney for EnCana, indicating EnCana’s intent to present testimony, arguments
and exhibits in the enforcement proceeding.

43.On July 14, 2004, Don DeFord, CountyAttorney
for the Board of County Commissioners of GarfieldCounty
(“BOCC”), filed with the Commission a Motion for Intervention under Rule 509.a.

44.On July 14, 2004, Sean
McAllister, Attorney for Western Colorado Congress (“WCC”) and Grand Valley
Citizens’ Alliance
(“GVCA”) filed with the Commission a Motion for Intervention under Rule 509.a.

45.On July 14, 2004, an email was
sent to the Commission from Robert Eicher describing the manner in which he
would like to participate in the OFV hearing.

46.On July 16, 2004, a document
titled “Testimony ref. West Divide Creek was filed with the Commission by
Steven R. Thompson.

47.On July 21,
a prehearing conference was held with the parties to discuss procedural issues,
submittal of documents and scheduling.

49.On August 9, 2004, COGCC staff and EnCana reported to the
Hearing Officer that progress was being made on reaching a stipulated
recommended order and they requested that the prehearing conference scheduled
for August 10, 2004
be rescheduled to allow additional time for negotiations.The Hearing Officer rescheduled the
prehearing conference for Thursday,
August 12, 2004.

50.On August 12, 2004, the third prehearing conference was held
at which time COGCC staff and EnCana presented a stipulated recommended order
for review by the parties.In addition,
case management was discussed for proceeding with the August 16-17, 2004 hearing.

51.At the time of the hearing, Commissioner
Klish recused himself from the proceedings as a voting Commissioner.

52.After comments provided by Mr. DeFord and an
objection by Ms. Enger to participation in the violation phase, the Commission
voted unanimously to accept the BOCC’s Motion for Intervention to allow the
County to intervene in both the violation phase and the penalty phase of the
hearing.

53.After comments provided by Mr. McAllister, an
objection by Ms. Enger stating a lack of showing that the intervention is in
the public interest, and a concern raised by Ms. Harmon, regarding the scope of
participation, the Commission voted unanimously to accept the WCC/GVCA Motion
for Intervention to allow WCC/GVCA to intervene in both the violation phase and
the penalty phase of the hearing.

54.After discussion on EnCana’s Motion in Limine
to exclude evidence regarding WCC/GVCA’s requested relief which it believes
goes beyond the scope of the hearing, the Commission determined that rather
than make a ruling at the beginning of the hearing, they would address these
issues as they arise during the course of the hearing.

56.COGCC staff witness Scott Klarich, Colorado Department
of Public Health and Environment Water Quality Control Division (“WQCD”) Enforcement
Team Leader testified as to the Memoranda of Agreements between the WQCD, WQCC and
the COGCC.He indicated his agency’s
agreement with the actions taken in response to the gas seep by COGCC staff.

57.COGCC staff witness Greg Nagle, WQCD Ground
Water Quality Coordinator testified as to the standards established by the WQCC
and his agency’s agreement with the COGCC staff’s recommended order.

58.COGCC staff witness Mark Beeunas, a gas
isotope expert, testified regarding interpretation of stable isotopes and
compositional analysis collected from water wells and gas wells which corroborated
COGCC staff’s interpretation of the source of the gas seeping into West Divide
Creek.

59.COGCC staff witness Richard Moore,
consulting geologist, testified that he had no changes to the data and
conclusions presented in his expert report after his review of the other expert
reports provided.He concluded that there
was a strong likelihood that the West Divide Creek gas seep was caused by
improper completion procedures at the Schwartz Well.

60.Ms. Enger indicated EnCana’s concurrence with
the COGCC’s staff presentation.Mr.
DeFord indicated the BOCC had no objections to the Commission accepting Finding
Nos. 1 through 39 of the stipulated recommended order, although the BOCC
objected to the number of days EnCana was found in violation of Rules 324A. and
207.Mr. McAllister presented a written
objection to the stipulated recommended order.

61.After discussion, Ms. Harmon proposed that
Finding No. 38 be amended to include both Rule 324A.a. and Rule 324A.b.This amendment was agreed to by the parties
and the Commission.

62.Commissioner Ashby asked Mr. Adkins if he had
reviewed the CBL run after the remedial cementing was performed.Mr. Adkins testified that the CBL showed a
good cement job and that the bradenhead test showed no pressure.All exhibits presented, including the second
CBL, were admitted.

63.After comments from BOCC and WCC/GVCA on the
number of days of violation of Rules 324A. and 910.a., the Commission deliberated
and voted unanimously to accept Finding Nos. 1 through 39 and previous Finding
No. 41 (now Finding No. 64), including the revision to Finding No. 38.

64.EnCana should be found in violation of Rule
209. from February 9, 2004
until April 5, 2004
for fifty-five (55) days of violation.EnCana should be found in violation of Rule 301. from February 16, 2004
until March 30, 2004 for forty-three (43) days of violation (failure to report
bradenhead pressure) and from February 16, 2004 until March 23, 2004 for
thirty-six (36) days of violation (failure to report fall of cement top).EnCana should be found in violation of Rule
317.i. from February 9, 2004
until April 5, 2004
for fifty-five (55) days of violation.EnCana should be found in violation of Rule 324A. from February 9, 2004 until April 5, 2004 for fifty-five
(55) days of violation.EnCana should be
found in violation of Rule 327. from February 9, 2004 until April 5, 2004 for fifty-five (55) days of
violation.EnCana should be found in
violation of Rule 910.a. from February
9, 2004 until April
5, 2004 for fifty-five (55) days of violation.EnCana should be found in violation of the
permit conditions from February
9, 2004 until April
5, 2004 for fifty-five (55) days of violation.EnCana should be found in violation of
§34-60-107, C.R.S. from February
9, 2004 until April
5, 2004 for fifty-five (55) days of violation.

65.Having determined that violations existed,
the Commission moved into the penalty phase of the hearing by having testimony
presented first by WCC/GVCA witness Herman Lucero to accommodate his
schedule.Mr. Lucero testified about the
sampling process he utilized in the West Divide Creek area, the results from
his water sampling and his observations in the area.

67.Rule 523. specifies a base fine of One
Thousand dollars ($1000) per day for violations of Rules 209., 301., 317.i.,
324A., 327., and 910.No base fine is
listed in Rule 523.a.(4) for violation of the Permit Conditions or §34-60-107,
C.R.S.Fines for these two (2)
violations (i.e., Permit Conditions and §34-60-107, C.R.S.) are limited
to One Thousand dollars ($1,000) per day in accordance with Rule 523.a.(1).

68.Rule 523.a.(1) specifies that “…no fine for
any single violation shall exceed One Thousand dollars ($1,000) per day.”EnCana does not admit liability for causing
significant waste or significant adverse impact on public health, safety or
welfare.However, it agrees to pay the
following fines as adjusted pursuant to Finding No. 69 in order to resolve this
matter without the necessity of an extended contested hearing:

Item ViolatedNumber of
Violation/Days Total
Fine/Rule

Rule 209.55$55,000.00

Rule 301. Bradenhead43$43,000.00

Rule 301. Cement36$36,000.00

Rule 317.i.55$55,000.00

Rule 324A.55$55,000.00

Rule 327.55$55,000.00

Rule 910.a.55$55,000.00

Permit Conditions55$55,000.00

§34-60-107, C.R.S.55$55,000.00

Total Maximum Allowable Fine Amount$464,000.00

69.The following mitigating factors were
considered in reducing the maximum allowable fine amount by ten percent (10%)
per mitigating factor, for a total of twenty percent (20%) fine reduction:Rule 523.d.(2), the violator demonstrated
prompt, effective and prudent response to the violation, including assistance
to any impacted parties, and Rule 523.d.(3). the violator cooperated with the
Commission with respect to the violation.These mitigating factors were applied to actions taken by EnCana once
the gas seep was discovered.

70.A monetary penalty of Three Hundred
Seventy-one Thousand, Two Hundred dollars ($371,200.00)should be assessed against EnCana, in accordance with Rule 523.a. and Rule 523.d., for the above-described
violations of the Rules, Permit Conditions and the Oil and Gas Conservation
Act.The fine should be suspended until
the Commission’s next regularly scheduled hearing on September 20, 2004 to give the parties
an opportunity to propose a public project in lieu of the fine.The Commission will hear and consider the
proposal of the public project and may approve, modify, or condition the
proposal or reinstate the fine.

71.EnCana should proceed under the Site
Investigation and Remediation Workplan, Form 27 approved by COGCC staff on May 13, 2004.EnCana should submit to the COGCC staff for
approval a Site Investigation and Remediation Workplan, Form 27, for the
investigation, remediation, and monitoring of ground water to meet the required
allowable concentrations.The COGCC
staff should evaluate EnCana’s compliance with both Form 27 Workplans
submitted.In addition, the COGCC should
direct the staff to maintain the moratorium on drilling and completion
operations within a two (2) mile radius of the seep at West Divide Creek until
the COGCC staff evaluates the effectiveness of the Notice to All Operators
Drilling Wells to the Mesaverde Group or Deeper in the Mamm Creek Field,
Garfield County drafted and implemented July 23, 2004 (“2004 Notice”) and determines
when the moratorium can be lifted.The
2004 Notice contains the following requirements that require operators in the
Mamm Creek Field to obtain COGCC staff approval prior to completion of a well
and will prevent the unusual set of circumstances that caused the West Divide
Creek seep from happening again:

A drilling prognosis
showing projected top of gas and formation tops shall be required with the
Application for Permit-to-Drill, Form 2.This information shall be provided in the form of a wellbore
diagram showing the top of gas, formation tops, and top of cement for each
stage.

Upon completion of the
primary cementing operation, the annular fluid level around the production
casing shall be monitored for a minimum of four (4) hours prior to the
installation of the casing slips.

The bradenhead pressure
shall be measured at intervals of six (6), twelve (12), twenty-four (24)
and seventy-two (72) hours after the production casing is cemented.If bradenhead pressures greater than one
hundred fifty (150) psig are observed, such pressures shall be immediately
reported to the COGCC and a remediation procedure shall be prepared for
COGCC approval.

Following the cementing
operation, a combination temperature/cement bond log shall be run within twelve
(12) to forty-eight (48) hours to locate the actual cement top.If the cement top does not conform to
this notice (500 feet above the top of gas), the COGCC shall be
immediately notified and a remediation procedure shall be prepared for COGCC
approval.

The bradenhead pressure
record, cement bond log, temperature survey log, and revised formation
tops shall be provided to the COGCC Northwest Area Engineer within seven (7)
days of cementing the production casing.

The COGCC shall review
the casing and cementing operations and approval shall be obtained by the
operator from the COGCC prior to commencement of completion operations.

The bradenhead pressure
shall be monitored and recorded when performing fracturing operations.

72.EnCana witness Kimberley Kaal, Senior Geologist
for Cordilleran Compliance Services, testified as to the environmental sampling
and monitoring conducted at the West Divide Creek gas seep area to date and the
plan for future studies.

73.EnCana witness Karmen King, Program Administrator,
Natural Resource Management Institute, ColoradoMountainCollege, testified on the
study she conducted on aquatic life in the West Divide Creek after the
discovery of the gas seep.She testified
about the scope, purpose, and four (4) sampling events (between May 10 and July 21, 2004) of the
study.Ms. King testified about BTEX and
methane measurements of surface water samples and seep samples.She also testified that one (1) of the four
(4) data sets of benthic macroinvertebrates had been analyzed and showed no
impact attributable to the seep.Ms.
King further testified that a fifth sampling event was scheduled for August,
2004 and that three (3) data sets of benthic macroinvertebrates were still to
be analyzed.

74.BOCC witness Doug Dennison, Garfield County
Oil & Gas Auditor testified about the photographs he had taken at the West
Divide Creek gas seep and its impact on public health, safety and the
environment of Garfield County citizens, and on the number of Notices of
Alleged Violation issued by the COGCC staff to EnCana in the past year.

75.BOCC witness Jeffery Thyne, Research
Professor in the Department of Geology and Geological Engineering at the
Colorado School of Mines testified about his independent review of the data
available at the COGCC office and his belief that the gas seep was caused by
incomplete cementation during completion of the Schwartz well, that the longer
term impacts of contamination have not been evaluated, nor the extent of the
contamination been determined, and that Garfield County should be involved in
the review of additional data gathered.

76.WCC/GVCA witness Pepe Langegger testified
about his personal experience with the gas seep on his property and potential
impacts affecting his elk herd population, and his belief that there is not
enough oversight of drilling.

77.WCC/GVCA witness Nancy Jacobsen testified
about living in proximity to four (4) gas wells, the need to hold EnCana
accountable for the gas seep, and her belief that EnCana should be required to
comply with the relief requested in the WCC/GVCA intervention.

78.WCC/GVCA witness Bill Griffin, spokesperson
for the neighborhood association, testified that he wants the moratorium on
drilling and completion to be extended until a complete study can be
performed.He testified that it may be
necessary to curtail drilling completely throughout the area, and that COGCC
staff should inspect all EnCana wells prior to completion.

79.WCC/GVCA witness Matt Sura, Director of
Western Colorado Congress testified about his experience working with oil and
gas issues over the past two (2) years, his belief that additional monitoring
and mitigation of the gas seep at West Divide Creek are needed prior to lifting
the moratorium on drilling, and his preference for a joint effort with EnCana
to determine potential public projects in lieu of a fine.

80.A sworn statement was made pursuant to Rule
510. by Hermann Stauffer who testified to express his concern about preserving
the land and water.

81.A sworn statement was made pursuant to Rule
510. by Ken Wonstolen, General Counsel for the Colorado Oil and Gas Association
who testified that he believes Rule 209. and Rule 324A. address the same
issue.He testified that he had concern
over the penalty calculations but would not bring it up because of the
stipulated recommended order.

82.A sworn statement was made pursuant to Rule
510. by Sher Long, Community Relations Consultant for EnCana who testified that
she lives on the Deitrich property and feels comfortable using the water from
the well and living in the area near the gas seep.

83.A sworn statement was made pursuant to Rule
510. by Matt Sura, Director of Western Colorado Congress to describe why there
were so few Rule 510. statements made at the hearing, indicating that citizens
for the most part could only attend one day of the hearing and the time for
making Rule 510. statements was not determined well in advance of the hearing.

84.Lisa Bracken and her father Robert Eicher had
wished to make a sworn statement pursuant to Rule 510. but had to leave
early.They asked Ms. Harmon to relay to
the Commission their approval with the process occurring over the two (2) days
of hearing, and their concurrence with the direction the hearing seemed to be
headed.

85.EnCana response witness Anthony Gorody, Consulting
Geologist, testified on his analysis of gas samples gathered from the West
Divide Creek seep, from surface water, from the Schwartz Wells and from other
wells in the vicinity of the seep. He
testified about methods for identifying the source of gas seeping into West
Divide Creek, the localized impact of the seep on aquifers, the influence of
fractures in the a1rea on the extent and direction of the seep, and EnCana’s
plan to conduct a nine (9) square mile study to detect methane at the surface,
including the corridor between the Schwartz 2-15B Well and West Divide Creek.

86.EnCana response witness Eric Marsh, Vice
President-Southern Rockies, testified about his company’s corporate philosophy,
new procedures put in place regarding cementing practices and bradenhead
testing, and the plan to provide more oversight from field personnel, the
amount of money EnCana has spent to date on investigating, mitigating, and
monitoring the seep, and EnCana’s commitment to continue following the program
required by the COGCC staff until it is complete.

ORDER

NOW, THEREFORE, IT IS
ORDERED, that EnCana Oil & Gas (USA) Inc. shall be found in
violation of the Permit Conditions requiring the cementing of production casing
to the surface on the Schwartz 2-15B Well located in the SWĽ SEĽ of Section 2,
Township 7 South, Range 92 West, 6th P.M.

IT IS FURTHER
ORDERED, that EnCana Oil & Gas (USA)
Inc. shall be found in violation of Rule 209. failure to prevent the
contamination of fresh water by gas, Rule 301., failure to notify the Director
when public health or safety is in jeopardy and failure to notify the Director
of significant downhole problems or mechanical failure, Rule 317.i., failure to
pump cement 200’ above the top of the shallowest producing horizon, Rule 324A.,
impacts to water quality, Rule 327., loss of well control and allowing an
underground blowout of gas, and Rule 910.a., failure to meet ground water
standards in Table 910-1.

IT IS FURTHER
ORDERED, that EnCana Oil & Gas (USA)
Inc. shall be found in violation of §34-60-107, C.R.S., waste due to the
loss of gas resources.

IT IS FURTHER
ORDERED, that EnCana Oil & Gas (USA)
Inc. shall be found to be responsible for the release of Williams Fork
Formation gas, benzene, and other hydrocarbon compounds from the Schwartz 2-15B
Well resulting in the subsequent impacts to the surface and ground waters of
the state and for monitoring and addressing the environmental and public health
and safety effects of the release.

IT IS FURTHER ORDERED,
that EnCana Oil & Gas (USA) Inc. shall be assessed a fine of Three Hundred Seventy One Thousand Two Hundred
dollars ($371,200.00) which fine shall be suspended until the Commission’s next
regularly scheduled hearing on September 20, 2004 to give the parties an
opportunity to propose a public project in lieu of the fine.The Commission will hear and consider the
proposal of the public project and may approve, modify, or condition the
proposal or reinstate the fine.

IT IS FURTHER ORDERED,
that EnCana Oil & Gas (USA) Inc. shall proceed
under the Site Investigation and Remediation Workplan, Form 27 approved by
COGCC staff on May 13, 2004.In
addition, Encana shall proceed under the Notice to All Operators Drilling Wells
to the Mesaverde Group or Deeper in the Mamm Creek Field, Garfield County
implemented and effective July 23, 2004.

IT IS FURTHER
ORDERED, that EnCana Oil & Gas (USA) Inc. shall submit to the COGCC staff for approval a Site
Investigation and Remediation Workplan, Form 27, to delineate the extent of
contamination to ground water and to continue the investigation, remediation,
and monitoring of ground water to meet the required allowable concentrations.

IT IS FURTHER
ORDERED, that the COGCC staff shall maintain
the moratorium on drilling and completion operations within a two (2) mile
radius of the seep at West Divide Creek until the COGCC staff evaluates (1) the
effectiveness of the Notice to All Operators Drilling Wells to the Mesaverde
Group or Deeper in the Mamm Creek Field, Garfield County, effective July 23,
2004 (“notice”), and (2) EnCana’s compliance with any applicable Site
Investigation and Remediation Workplan, Form 27, as approved or amended by the
COGCC staff (“investigation and remediation requirements”), related to the gas
seep in the area of West Divide Creek.After the COGCC staff evaluates the effectiveness of the notice and
EnCana’s compliance with investigation and remediation requirements, it shall
make any modifications it deems necessary and lift the moratorium when, in the COGCC
staff’s determination, the appropriate safety precautions are set forth in the
notice and EnCana has complied with all investigation and remediation
requirements related to the gas seep in the area of West Divide Creek.

IT IS FURTHER ORDERED,
that the provisions contained in the above order shall become effective
forthwith.

IT IS FURTHER
ORDERED, that the Commission expressly reserves its right after notice and hearing, to alter, amend, or
repeal any and/or all of the above orders.

IT IS FURTHER
ORDERED, that under the State Administrative Procedure Act the Commission
considers this order to be final agency action for purposes of judicial review
within thirty (30) days after the date this order is mailed by the Commission.

IT
IS FURTHER ORDERED, that an application for reconsideration by the Commission
of this order is not required prior to the filing for judicial review.